Bankruptcy in Spain (1): New moratorium to request insolvency

The negative impact of the economic crisis generated by the Covid-19 pandemic on business finances worldwide has led to a considerable lack of liquidity for companies. In Spain, the new moratorium to request insolvency set for 31 December 2021 aims to slow down the destruction of the country’s business tissue. Most times, however, the delicate situation threatens to become a permanent solvency problem risking the survival of companies, especially SMEs in the tourism, hospitality, leisure, and culture sectors.

The Spanish Government recently communicated to the European Commission the economic data for 2020 (*):

  • GDP fall of 9.2%
  • An unemployment rate of 19%
  • 8.8% fall in consumption
  • Reduction of exports by 27.10%
  • Deficit bursting to 10.3%

The Bank of Spain recently pointed out that, although the recovery of the Spanish economy could begin in the second half of 2021, it will not return to pre-crisis GDP levels until at least 2023. These data place the country in a very similar position to that of the 2008 crisis.

In this context, many companies in Spain have had great difficulty in meeting their payment obligations regularly. Hence the high number of applications for insolvency proceedings which, predictably, will accumulate until the end of the insolvency moratorium (currently set for 31 December 2021) and will soar afterwards.

The estimates by the Minister of Justice refer to a 619% increase in insolvency proceedings in 2021. Other studies claim that we could even surpass the 50,000 insolvency proceedings barrier.

The study on insolvencies and dissolutions carried out by Informa D&B shows that in March 2021 alone, Spain registered 630 company insolvencies (82% micro-companies, 16% small companies, and 1.5% medium-sized companies) and 2,572 dissolutions. This means a 15% increase in insolvency proceedings compared to the previous month and a 103% increase compared to the same month of 2020; it represents the highest number of insolvency proceedings since October 2014.

Geographically, Catalonia, Madrid, and Valencia account for approximately 60% of the total number of insolvency proceedings registered in the first quarter of 2021.

From 2017 to 2019, Spanish courts were already overcrowded and unable to handle the total number of insolvency proceedings, despite the opening of new Commercial Courts. With the high number of insolvency proceedings already declared in 2021, it is hard to figure out that the courts will cope with the avalanche of insolvency proceedings to come, especially after the insolvency moratorium.

Company dissolutions are also on the rise; according to a study by Crédito y Caución, between January and April 2021, over 10,000 businesses stopped their activity.

On a positive note, however, it is worth mentioning that the number of new company incorporations is experiencing a significant increase in most Spanish regions. Similarly, the number of capital increases registered in the Mercantile Registries has multiplied. Both facts highlight the commitment of a part of the business tissue to promote different projects and start new economic activities.

(*) Source: Expansión Newspaper

This article is not considered legal advice

Saphira Mouzayek

Having graduated with a Law degree, Saphira Mouzayek’s practice areas are company law and business law. Working languages: Spanish, German and English. For any query Contact Saphira Mouzayek